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Survey on the “French Telecom Economics”
                     2012 edition



Fédération Française des Télécoms / Arthur D. Little

November, 2012
Survey on the “French Telecom Economics” (period 2006-2011)


1   The telecom industry is at the core of society and economy.


2   Telecoms are a major driver in the development of the digital economy.


3   In France, telecom operators’ performance is declining under strong regulatory, fiscal and competitive pressures.


4   An ambitious and consistent industrial policy for telecoms is required at both French and European levels.




                                                                                                                   2
Telecoms, at the core of society and economy


Over   3/4     of French people                       €39 B    invested in telecom networks
have a mobile phone and an internet access                                        since 2006




Over   300,000                                       €204 B   injected in the French economy
direct and indirect telecom jobs                                                  since 2006
based in France




Less than   3%      of French households’ spending       8%       decrease in telecom prices
dedicated to telecom services                                                       since 2006
                                                                       vs. inflation of +10%

                                                                                           503
1   At the core of society and economy

    Telecom services are now almost universal in French society: more than 85% of the
    population equipped with a mobile and 76% having an internet access.

                       Mobile equipment rate(1)                              Penetration rate of internet access(2)

    % of French population                                          % of French households




                                +11 points
                                                             85%                                 +35 points
                                          82%         83%
                              78%                                                                                       74%         76%
           74%     75%                                                                                     69%
                                                                                               62%
                                                                                  55%

                                                                     41%




       2006        2007       2008        2009        2010   2011    2006         2007         2008        2009         2010        2011


    Source: CREDOC, OECD, Arthur D. Little analysis                         (1) French people over 12 years with one mobile phone or more
                                                                                                                     (2) Fixed and mobile
                                                                                                                                            4
1   At the core of society and economy

    Telecoms are a priority for the French population, French investors and French public
    representatives.
               1 - Main saving items                           2 - Mains levers to improve attractivity
                                                                                                                           3- Priority equipment for rural towns
             according to households                            of French cities for foreign investors

     If needed, on which item would you cut                     What are the key levers that French                       % mayors questioned
     your spending in priority?                                 cities should use to increase their
                                                                competitiveness in Europe?

                  Leisure                           47%           First-class transport and telecom infrastructures        Fixed broadband                              78%
                                                                                                                37%
                 Clothing              21%                        Internationally renowned universities                               Schools                     52%
                                                                                                                37%
      Home equipement              14%                            Innovative business areas
                                                                                                                                        Roads                 45%
                                                                                                          30%
                    Food        7%                                Excellent quality of life
                                                                                              22%                              3G telephony                   42%
                Transport     2%                                  Public equipment and urban development projects
                                                                                    13%                                       Medical houses                34%
                                                                  International advertising campaigns
                  Energy      2%
                                                                                    13%
                                                                  Quality health equipment and services                              Theaters           23%
      Health & insurance      2%
                                                                                  11%
                                                                  Major sports and cultural events                         Sports equipments           19%
               Telecoms      1%
                                                                             8%
                                                                  None
                    None      4%                                                                                                  Post offices        16%
                                                                   1%


    Source: fig. 1: CSA polling institute, fig. 2: Barometer of France’s attractiveness, fig. 3: Survey by the Association of French rural mayors, Arthur D. Little analysis

                                                                                                                                                                               5
1   At the core of society and economy

    Telecom usage keeps on growing at a very rapid pace: +11% in mobile voice minutes,
    +69% in data traffic and +10 billion text messages in France over last year.
         Fixed telephony                         Mobile telephony                 Number of SMS               Mobile data traffic
        volumes in France                       volumes in France                   in France                    in France
      B minutes                              B minutes                        B SMS                         B Mo


          +7%                                     +13%                           +870%                          x127

               113.5                                   106.1                          146.0                         58.6
      105.7
                                               94.0                                           +10 billion
                                                                                               of SMS


                                                                                                                             +69%
                                                                                                +29%
                                                                    +11%
                              -1%                                                                                                 23.0
                                                                                                     45.7
                        28.1                                    26.8   29.7
                                27.7                                                          35.5                         13.7

                                                                               15.1
                                                                                                              0.5

       2006    2011    2Q11     2Q12           2006    2011    2Q11    2Q12    2006   2011    2Q11   2Q12    2006   2011   2Q11   2Q12




    Source: ARCEP - French Telecom NRA, Arthur D. Little analysis

                                                                                                                                         6
1   At the core of society and economy

    Telecom services represent less than 3% of French households’ spending and have remained
    stable since 2006.

                                                      French households’ spending breakdown(1)

      €B                                                                                                       Relative growth
      Share in spending %                                                                                      % of spending in constant euros
                              1 017                                                                                                                          +1.7 pts
                                               100%
               11.1%                                                                                                                                                4.4%
                                                           (2)
               2.7%                               Other
               4.4%                               Telecom services             (3)
               3.0%                                                                     (4)
               4.2%                               Digital devices                                                                                            +0.1 pts
               4.5%                               Alcohol & tobacco                                          2.7%                                                   2.7%
               6.0%                                       (5)
                                                  Health
               6.8%                                                                                            2.6%                                                 2,1%
                                                  Clothing
               6.9%
                                                  Furniture                                                                                                         1,9%
                                                                                                             1,3%
               13.3%
                                                  Leisure & culture                                          1,1%
                                                  Hotels & restaurants
                                                                                                                                                                    0,5%
               13.5%
                                                  Food                                                       0,2%
                                                  Transport
                                                  Housing, electricity & gas                             2006                                                       2011
                                                                                                                               Digital devices
               23.6%
                                                                                                                    Of which        Radio & TV sets
                                                                                                                                    Computer
                                                                                                                                    Mobile devices
                              2011                                                                                             Telecom services
                                                                                (1) Final household spending
    Source: National Institute of Statistics and Economic Studies (INSEE),      (2) Including postal services and education
    Arthur D. Little analysis                                                   (3) Excluding telephony devices
                                                                                (4) Including telephony, fax, TV & radio, computer and photography devices
                                                                                (5) Excluding social security                                                              7
1   At the core of society and economy

    The prices of telecom services are decreasing, contrary to other major French households’
    spending.

                                               Price index of major services for French households

     On a basis of 100 in 2006
         140
                                                                                                                                               + 36%
                                                                                                             136      Gas
                                                                                                                      Rail                     + 17%
                                                                                                              117     Electricity              + 16%
                                                                                                              116
           115
                                                                                                              114     Mail                     + 14%
                                                                                                              112
           110                                                                                                        Tolls                    + 12%
                                                                                                              110
                                                                                                              107     Inflation                + 10%
           105
                                                                                                                      Financial                 + 7%
                                                                                                                      services
           100

             95
                                                                                                              92      Fixed and mobile
                                                                                                                                                 -8%
             90                                                                                                       telecom services
               2006              2007             2008             2009      2010       2011            2012(1)
    Source: National Institute of Statistics and Economic Studies (INSEE),          (1) 1H2012 average, except for tolls (increased as of Feb. 1st, 2012)
    Ministry of Transportation, Arthur D. Little analysis
                                                                                                                                                       8
1   At the core of society and economy

    Telecom operators are the main private investors in infrastructure in France with €39 B
    invested in telecom networks over the last 6 years.

          Telcos’ investment in France between 2006 and 2011                                     Investment in infrastructures in France

     €B                                                                                        Yearly average over 6 years, for the period 2006-
                                                                     Excl. mobile
                                  Total 2006-2011:                    spectrum                 2011, € B(1)
                                      €39.4 B
                                                                                                     6.6
                 7.0                                   6.8     7.0
                                    6.5
                           6.2
                                             5.9
                                                      2.4      2.4
     Mobile 3.2                                                             €15 B
                                    2.4
                          2.4                2.2                                                                   3.3(2)          3.2

                                                                                                                                                 1.8


                                                       4.4     4.6
       Fixed 3.8           3.8      4.1      3.7                           €24.4 B
                                                                                                 Telecoms       Electricity       Rail        Highways
                                                                                                                networks

                                                                                                           Telecoms, 1st private investor
                2006     2007      2008     2009     2010      2011
                                                                                                             in infrastructures in France
    Source : ARCEP – French Telecom NRA, Association des             (1) Telecoms: France Télécom, SFR, Bouygues Telecom, Iliad; Electricity: RTE et ERDF;
    Sociétés Françaises d’Autoroutes (ASFA), RFF, RTE, ERDF,          Réseau Ferré de France: special status; Highways: ASFA (Sanef, SAPN, ASF, APRR….)
    Arthur D. Little analysis                                                                                            (2) Average on 5 years (2006-2011) 9
1   At the core of society and economy

    The telecom industry supports employment with 128,000 direct jobs based in France.


         Direct jobs from telecom operators in France                                                           Jobs in the IT digital ecosystem in France

      Thousands of jobs based in France                                                                Thousands of jobs based in France(1)                                                 2006
                                                                                                                                                                                            2011


              133                                                                                        133.0 128.0
                        130
                                                                               128
                                      126                        126
                                                   124




                                                                                                                             18.3                                       22.3
                                                                                                                                    11.6                         14.0
                                                                                                                                                0.7 1.9                             1.8 3.1

          2006         2007          2008         2009          2010          2011                          5 telecom       5 equipment         5 device          5 content       5 internet
                                                                                                           operators(2)      vendors(3)         manuf.(4)        providers(5) players (OTT) (6)

          Estimate: indirect jobs equal to direct jobs
          in the telecom industry
    Source: Diane, ARCEP – French Telecom NRA, Arthur D. Little analysis
                 (1)   2010 data in case 2011 data are not available                                                (4) By top revenues in France: Samsung, Apple, Nokia, LG et RIM
                 (2)   By top revenues in France: France Telecom, SFR, Bouygues Telecom, Iliad, Numericable         (5) By top revenues in France: France Télévisions, Canal +, TF1, M6, Radio France
                 (3)   By top revenues in France: Alcatel-Lucent, Nokia Siemens Networks, Cisco, Ericsson, Huawei   (6) Google, Facebook, Yahoo, Microsoft et Amazon                              10
1   At the core of society and economy

    Telecom operators paid €19 B in income taxes, licenses and industry-specific taxes between
    2006 and 2011.
            Income tax paid by                                  Industry-specific taxes                                         Amounts spent
         French telecom operators                                 paid by operators(2)                                      to purchase spectrum
     Aggregate 2006-2011, in €B                        €B                                                          €B

                  2006-2011 total                                          2006-2011 total                                          2006-2011 total
                      €14 B                                                 €3.6 B(3)                                                    €1.5 B
                         14.1                                                              1.191 1.210
                                                                                             170     191

                                                                                             239     235                                                      2.600

                                                                                     543     264     253
                                                                                      92
                                                                    230      266     212                                                    0.944
                                                         200         0       33              518     531                  0.582
                                                                0
                                                         200        230      233     239

                       (1)
                                                         2006       2007    2008    2009    2010    2011                   3G               4G                4G
                                                                                   Management levies                      2010           (2.6 Ghz)         (800 Mhz)
                                                            Other(4)
                                                                                   (frequencies)                                           2011              2012
                                                            Telecom tax            IFER (Flat-rate tax
                                                                                   on network industries)
                                                                                                                                                 (1)   Fiscal group France
    Source: ARCEP – French Telecom NRA, FFTélécoms, annual reports, Les Echos,
                                                                                                            (2)    Fiscal group France Orange, SFR and Bouygues Télécom
    Arthur D. Little analysis                                                                                (3)   Assumption: IFER set up in 2010 and telecom tax in 2009
                                                                                                                                   (4)    TST / COSIP / copyright levy, VoD 11
1   At the core of society and economy

    In total, telecom operators injected €204 B in the French economy between 2006 and 2011.


     Between 2006 and 2011…
                                                             French State
                                                   Telecom operators paid
                                                   €23B to the State in taxes
                                                   (excl. VAT), licenses and
                                                   dividends.
                 Direct and indirect
                                                                                              Networks
                        jobs                                      11%
            Telecom operators paid €76B                                              Telecom operators invested
            in salaries and benefits for               37%              19%          €39B in the roll-out, upgrade
            direct and indirect jobs.(1)                                             and maintenance of their
                                                                                     telecom networks.
                                                                        10%

                   Other suppliers / outsourcing                23%               Private shareholders

                      Telecom operators spent €46B                              Telecom operators paid €20B to
                      in other types of expenditures                            their private shareholders.
                      (marketing, distribution,...).

    Source: companies, Arthur D. Little analysis                                            (1)   Salaries and social charges

                                                                                                                                12
Survey on the “French Telecom Economics” (period 2006-2011)


1   The telecom industry is at the core of society and economy.


2   Telecoms are a major driver in the development of the digital economy.


3   In France, telecom operators’ performance is declining under strong regulatory, fiscal and competitive pressures.


4   An ambitious and consistent industrial policy for telecoms is required at both French and European levels.




                                                                                                                  13
Telecoms, major driver of digital growth

Growth of the digital ecosystem since 2006:                 Share of telecoms in the French
                                                                          digital ecosystem:
+49%             worldwide
                                                                   77%               of jobs

vs.   +7%      in Europe
                                                                 92%         of investments




Share of telecoms in the global                             Investment of telecom operators
digital ecosystem:                                 in very high speed broadband in France:

70%        of investments                            over 1 point
                                               a potential of


                                              of additionnal GDP
                                                            benefiting the French economy
                                                                                          14
                                                                                         50
2   Major driver of digital growth

    Globally, the digital sector is sharply growing across all segments.


                                        Revenue evolution of the digital ecosystem by sub-sector(1)

     $B                                                                                                   Growth           Examples of
                                                                        +49%                             2006-2011         companies
                                                                                             3,332
                                                                                     3,066    157         +152%
                                                                 2,817     2,819      121     305
                                                                                                           +10%
                                                         2,619     87       97        301
                                                          78      320       299
                   Internet players      2,243            302
                                                 62                                          1,286         +68%
                 Content providers        279                                        1,175
                                                                 987       1,007
                                                         889
            Device manufacturers          765                                                179           +19%
                                                                 181           166   173
                                                         177
               Equipment vendors          150

                                                                 1,242     1,251     1,297   1,405
                                                         1,173
              Network operators           987                                                             +42%


                                         2006            2007    2008      2009      2010    2011
    Source: Thomson Reuters, Arthur D. Little analysis                                               (1) Top 30 per category by 2011 revenues

                                                                                                                                            15
2   Major driver of digital growth

    In Europe, revenues of the digital ecosystem are stalling - contrary to North America and Asia.


                                         Revenue evolution of the digital ecosystem by region(1)(2)

     $B                                                                                                     Growth 2006-2011
                                                                                       3,333
                                                                             3,067      27                       +58%       Oceania

                                                         2,817    2,820       21
                                              2,619       24       21
                                               20                                      1,446                     +73%       Asia
                               2,243                                         1,312
                  Oceania       17                       1,117    1,165
                                               968
                      Asia      837                                                      70                      +118%      South America
                                                          37                  66
                                                42                 45
          South America          32
                                               893       954                 1,025     1,155                     +51%       North America
                                                                   937
           North America        762


                   Europe       594            696       686       652       643        635                       +7%       Europe
                                                                                                                            but -9% since 2007

                               2006            2007      2008     2009       2010       2011

    Source: Thomson Reuters, Arthur D. Little analysis                                         (1)         Top 30 per category by 2011 revenues
                                                                                                     (2)     Nationality according to HQ location
                                                                                                                                                 16
2   Major driver of digital growth

    Globally, telecom operators generate the vast majority of investments, whereas device
    manufacturers and internet players capture more and more value.

                  Investment share by sub-sector(1)                                          Free cash flows by sub-sector(1)

     % of total investment of the ecosystem                                     % of total free cash flows of the ecosystem

            +0 pt
                                                                                  -9 pts
         70% 70%                                                                 57%

                                                                                       48%
                                                                                               +16 pts

                           -1 pt                                                                                             -7 pts
                                                                                                    26%                                  +7 pts
                        21% 20%                           -1 pt       +1 pt                                 -3 pts       17%
                                          +0 pt                                               13%                                            12%
                                                                                                           7%                   10%
                                                         6% 5%                                                   4%                     5%
                                       2% 2%                         2% 3%

         Network          Device     Equipment            Content    Internet     Network      Device     Equipment       Content        Internet
         operators        manuf.      vendors            providers   players     operators     manuf.      vendors       providers       players

                                   2006       2011                                                        2006        2011

    Source: Thomson Reuters, Arthur D. Little analysis                                                    (1)    Top 30 per category by 2011 revenues

                                                                                                                                                    17
2   Major driver of digital growth

    Globally, market capitalisation reflects the value capture of players within the digital
    ecosystem.

                                                         Market capitalisation by sub-sector(1)

      Basis of 100 in 2006
                          220
                                                                                                            202
                          200                                                                                       Internet players    +102%


                          180
                                                                                                            159
                          160                                                                                       Device manuf.
                                                                                                                                        +59%
                          140

                          120                                                                               114
                                                                                                                    Total               +14%
                                                                                                            99
                          100                                                                                       Network operators    -1%
                                                                                                            81
                           80                                                                                       Content providers   -19%

                                                                                                            56
                           60
                                                                                                                    Equipment vendors   -44%
                           40
                            2006             2007          2008       2009        2010       2011         2012(2)



    Source: Thomson Reuters, Arthur D. Little analysis                                              (1)   Top 30 per category by 2011 revenues
                                                                                                                    (2) As of Sept. 28th, 2012
                                                                                                                                              18
2   Major driver of digital growth

    In France, telecom operators are the main contributors in terms of revenue, employment,
    taxes and investments - by far.

                  Revenues, jobs, taxes and investments of 5 players by sub-sector – in 2011 and in France


                 Revenues(1):                               Direct jobs:                               Taxes and licenses(2):                                  Investments(3):
                    €68 B                                     167,000                                         €7.1 B                                               €7.6 B



                                                                      2%                                                 1%                                                   4%
                             8%                                                                                           10%                                                  1%
                                                                        13%                                                                                                 1%2%
                                                                                                                            1%1%
                                   14%                                     1%
                                                                            7%

                                      11%
            64%
                                     3%                  77%
                                                                                                                 88%                                                 92%


               5 network operators            5 equipment vendors                    5 device manufacturers                     5 content players                      5 internet players (OTT)




    Source: ARCEP – French Telecom NRA, Diane,
    Reuters, annual reports, Arthur D. Little analysis   (1) Revenue reported for France or disclosed in the press, some adjusted data to estimate actual revenue generated on French market
                                                                                                                    (2) Income tax, other taxes excl. VAT, licenses and industry-specific taxation   19
                                                                                                   3) Excl. licenses, if data for France unavailable then estimated with prorata of jobs in France
2   Major driver of digital growth

    Nationally as well as globally, telecom operators are key players in the development of
    potential « sectors of tomorrow » in the growing digital ecosystem.
                                                                                                                                 Selected examples

          Cloud computing                          Contactless payment                     E-health                           Support to start-ups

                                                                                    Strategic partnerships
                                                                                                                               Support to start-ups in
                                                                                                                               communication services e.g.:
                                                    Association Française du
       Public funding: €75M                         Sans Contact Mobile
                                                    (AFSCM) initiated by Orange,
                                                    SFR et Bouygues Telecom
                                                    – Over 1 million Cityzi
                                                      mobile handsets               Illustrative services:
                                                      distributed in France by      – Medical imaging through                  Investment fund in start-ups
                                                      1H12                            cloud                                    such as:
       Public funding: €75M                         – Objective of 2.5 million by   – Partnership for
                                                      end of 2012                     management of chronic
                                                                                      diseases, mobile
                                                                                      assistance …                          Technocom 2
           Strategic partnership                    Creation of electronic
                                                    wallet solution                 Orange’s 2020 objective for                Investment fund in start-ups
                                                                                    access to digital health                   with focus on digital
                                                                                    applications(1):                           developments in networks,
                                                                                    – 1/3 of EU hospitals                      energy, smart home and
                                                                                                                               health
                                                                                    – 20% of EU citizens

    Source: companies, Arthur D. Little analysis                                       1) Orange’s “10 commitments” contributing to implement EU’s Digital Agenda

                                                                                                                                                                20
2   Major driver of digital growth

    Through their broadband investments, telecom operators can contribute to the economic
    recovery by generating over 1 point of additionnal GDP growth in France.
                               Impact of investment in mobile and fixed broadband in France
               directly or through the digital ecosystem and improvement of competitiveness of companies



                                                  ~€20 to €30B                                         ~€6.2B
                                                                                                  investment in 4G
                                                 investment in fiber
                                                                                                (excluding licenses)
                                               in the coming 15 years
                                                                                                in the coming 5 years




                                        Fixed broadband throughput X5
                                                                                                                                 Investing ~€5B in 4G
                                             in equipped households                                                              would yield 0.37 point
                                           (from 20 Mbps to 100 Mbps)                                                             of additional GDP2)

                   Doubling the
                broadband speed
                 for an economy
                  increases GDP
                   by 0.3 point(1)
                                                  +0.75 point                                       +0.46 point
                                                  extra GDP      (1)                                extra GDP(1)



    Source: ARCEP, Tactis, IDATE, Capital Economics, Arthur D. Little analysis        (1) According to Ericsson (« Socioeconomic effects of broadband speeds »,
                                                                                                         September 2011) in a survey focused on OECD countries
                                                                                 (2) According to Capital Economics (« Mobile Broadband and the UK Economy », 21
                                                                                                                           April 2012) addressing the UK market
Survey on the “French Telecom Economics” (period 2006-2011)


1    The telecom industry is at the core of society and economy.


2    Telecoms are a major driver in the development of the digital economy.


3    In France, telecom operators’ performance is declining under strong regulatory, fiscal and competitive pressures.


4    An ambitious and consistent industrial policy for telecoms is required at both French and European levels.




                                                                                                                    22
Sharp drop in telecom operators’ performance

Market capitalisation of European telecom operators
since 2006
                                                                     €15 B             of revenue loss

-28%                                                  for French telecom operators due to decreases in
                                                         mobile termination rates and roaming charges
                                                                                            since 2006


Expected trend of French telcos’ revenues
until 2014                                               €1.2 B           of industry-specific taxation

-9%                                                                 paid by telcos each year in France




Expected trend of French telcos’ EBITDA                                      Telcos’ mobile revenues
until 2014                                                    that may be captured by internet players

-5 points                                                                               7.5%
                                                                                                     23
                                                                                                    50
3   French telcos facing strong pressures

    Contrary to other regions in the world, the European telecom industry has hardly grown in 5
    years, which implied a sharp drop in its value.

            Revenues of network operators by region(1)                                   Market cap of network operators by region(1)

      Basis of 100 in 2006                                                          Basis of 100 in 2006
                                            172                       +72%
                                                   Asia


                                            156
                                                                      +56%
                                                   North America                                                                                     +18%
                                                                                                                                  Asia
                                                                                                                       118
                                            142                                                                                 Dow Jones            +17%
                                                   World              +42%                                                117   Industrial
                                                                                   100                                      107                       +7%
                                                                                                                                North America
                                                                                                                          99      World               -1%

                                                                                                                          72
                                                                                                                                  Europe              -28%
                                                   Europe             +8%
      100                                   108

     2006     2007   2008    2009    2010   2011                                   2006 2007 2008 2009 2010 2011 2012(2)


         Telco’s revenue growth is 7 to 9 times             lower                        European telcos’ value has shrunk by 28%
         in Europe than in Asia and North America                                        between 2006 and 2012(2)

    Source: Thomson Reuters, World Bank,                                                 (1) In top 30 global operators, nationality according to HQ location
    Arthur D. Little analysis                               Revenue growth of Australian and South American network operators is respectively 13% and 26%
                                                                                                                          (2) Value as of Sept. 28th, 2012 24
3   French telcos facing strong pressures

    The decrease in revenues is stronger in France than in other European countries and in other
    parts of the world.
                          Mobile revenue growth                                                            Fixed revenue growth(2)
                             4Q11 vs. 4Q10                                                                      2011 vs. 2010
     Revenue growth in %                                                             Revenue growth in %



                                                                                              11.3%
               5.0%



                                                                                                                 4.6%
                                0.2%




                                                -4.0%                                                                              -2.2%              -2.7%
                                                                  -5.3%
                                                                                                US             Canada                UK              France
              North         Asia Pacific       Europe           France(1)
             America


    Source: Bank of America Merrill Lynch, ARCEP, Arthur D. Little analysis   (1) Retail market revenues (source: ARCEP – French telecom NRA)
                                                                              (2) 3 main wireline operators (USA: AT&T, Verizon, Sprint; Canada: BCE, Telus, Shaw
                                                                                  Communications; UK: BT, Virgin Media, TalkTalk; France: Orange France, SFR, Iliad) 25
3    French telcos facing strong pressures

    In France, telecom operators’ revenues and margins are expected to sharply decrease until 2014.

                          Aggregated revenues                                                          Aggregated EBITDA margin
                        of main telcos(1) in France                                                     of main telcos(1) in France
      €B                                                                                 % revenues



                   +4%              -2%                                                  40%              -9%
      45                                                  -9%                                  37.5%
                   43.4      43.6                                                                                                       -14%
                                          42.6                                                        35.1%
            41.9                                                                                               34.3% 34.0%
                                                   41.0
                                                                39.5
      40                  Revenues                                     38.8                                   EBITDA              30.9%
                            as of                                                                                                           29.8% 29.2%
                                                                                         30%                   as of
                           1H12:                                                                               1H12:
                           €20.7 B                                                                             32.9%
      35                                         Analyst consensus
                                                                                                                                Analyst consensus


      30                                                                                 20%
        2008       2009      2010      2011       2012e     2013e      2014e                 2008     2009      2010     2011     2012e     2013e    2014e



     Source: Citigroup, HSBC, Exane, Natixis, Credit Suisse, JP Morgan, Deutsche Bank,                          (1) Orange France, SFR, Bouygues Telecom, Iliad
     Arthur D. Little analysis
                                                                                                                                                            26
3   French telcos facing strong pressures
    Margin decline will negatively impact investment capacity as illustrated by the case of the UK
    market.

                                                               Case of UK – Mobile and fixed(1)


                               EBITDA / Revenue (%)                                                Investment / Revenue (%)

            Basis of 100 in 2006                                                   Basis of 100 in 2006

                                           -6.3%                                                                  -28.3%
                                  100                                                                    100
                                                        94


                                                                                                                               72




                                 2006                  2011                                             2006                  2011


    Source: Bank of America Merrill Lynch, Arthur D. Little analysis               (1)   Mobile: Vodafone, O2, Orange / T-Mobile, Three; Fixed: BT only

                                                                                                                                                          27
3   French telcos facing strong pressures

    Operational cash flows of French telcos are in the same range as those of other major
    French companies.
                                                                                                                                                          (EBITDA – CAPEX) / Revenue
                                                                                                                                                                 CAC 40, 2011
     %
         27%

             23% 21%
                    20%
                           17%
                       18%           16%
                             17% 17%
                                       14%
                                              13% 12%
                                          13%         12%
                                                13%
                                                         10% 10%
                                                                9% 9% 9% 9%
                                                                            8% 8% 7% 7%
                                                                                                                                                                                                                                                                                               6%
                                                                                                                                                                                                                                                                                                           5% 5% 5% 4%
                                                                                                                                                                                                                                                                                                                       4%
                                                                                                                                                                                                                                                                                                                                                                             3% 3% 3%
                                                                                                                                                                                                                                                                                                                                                                                                    2% 1%


                                                                                                                                                                                                                                                                                                                                                                                                                         -2%




                                                                                                                                                                                                                                                                            Bouygues Telecom




                                                                                                                                                                                                                                                                                                                                                        STMicroelectronics
                                                                                                                    Schneider Electric
                                                              France Télécom
                   Pernod Ricard




                                                                                                                                                                                                                                                           Alcatel Lucent




                                                                                                                                                                                                                                                                                                                      Saint Gobain
                                                                                                                                                                                                                                                                                               Capgemini
                                                                                                                                                                Air Liquide




                                                                                                                                                                                                                                     GDF Suez




                                                                                                                                                                                                                                                                                                           Bouygues




                                                                                                                                                                                                                                                                                                                                                                                                                          Carrefour
                                                                                                                                                                                                                                                                                                                                                                                                             Vallourec
                                                                                                                                                                                                                                                                                                                                                                                    Peugeot
                                   Legrand




                                                                                                                                                                                                                                                Michelin
                                                                                                                                                                                                                   Technip
                                                                                                                                         Danone




                                                                                                                                                                                                         Renault
                                                                               Publicis




                                                                                                                                                                                      Lafarge
                                             Vivendi




                                                                                          L’Oréal




                                                                                                                                                                                                                                                                                                                                     Arcelor
                                                                                                                                                                                                                                                                                                                                               Alstom
                                                                                                    Essilor




                                                                                                                                                                                                Safran
          Sanofi




                                                       LVMH




                                                                                                                                                                                                                                                                                                                                                                                                    Veolia
                                                                                                                                                                                                                                                                                                                                                                             EADS
                                                                                                                                                                                                                             Accor
                                                                                                                                                                              Total
                                                                                                                                                  Vinci
                                                                                                                                                          PPR
                                                                                                              SFR




                                                                                                                                                                                                                                                                                                                                                                                              EDF
    Source: Thomson Reuters, operators, Arthur D. Little analysis

                                                                                                                                                                                                                                                                                                                                                                                                                                      28
3   French telcos facing strong pressures

    Market value is negatively impacted by declining performance, which may open the door to
    bids by foreign players.

                                            Compared value of selected US and European telcos(1)

     Enterprise Value(2) / EBITDA 2011

    Share of
    revenue in NA              100%              NA              53%             73%        100%            90%           69%            83%
    Europe
                 10.2
                                 9.8                                                                                                           US telecom
                                                                                                                                                average
                                                                                       America Movil
                                                                                        bid in 2012                                                    8.3
                                                 7.5
                                                                                                                                          European telecom
                                                                 5.8                                                                          average
                                                                                 4.5        4.4                                                        4.9
                                                                                                            4.0            4.0
                                                                                                                                         3.5




                At&T             Iliad         Verizon                           DT         KPN             FT          Vivendi      Bouygues
                                                                                                                        Group         Group


    Source: Reuters, KPN, Infinancials.com, Morgan Stanley, analyse Arthur D. Little              (1)   Bouygues Group and Vivendi Group used as proxies
                                                                                                                         for Bouygues Telecom and SFR
                                                                                                                              (2) As of Sept. 28th, 2012     29
3   French telcos facing strong pressures

    The French telcos’ drop in performance can be explained by the deterioration of the
    regulatory and fiscal context as well as through a tougher competition.

                                  Regulation                              Taxation                           Competition


                       National regulation                   National over-taxation               Growth of low-cost model
                         Regulatory pressure (loi Chatel,      Taxing telecom operators to          Model based on lighter
                         decision on VAS…)                     benefit sectors in turmoil           customer management with
       France




                         Gradual implementation of the         instead of investing in telecom      limited distribution footprint, no
                                                               innovative infrastructure and        handset subsidizing
                         national regularoty framework
                         for investments (LTE, fiber)          services                             Lower prices impacting
                         compared to policies followed by                                           profitability, investments, jobs
                         other countries (Japan, S. Korea,                                          and quality of service
                         USA…)

                       European regulation                   Tax optimisation by other            Competition of over-the-top
                         Regulatory pressure aiming at       players                              players (OTT)
       International




                         tariff decrease (interconnection,     Unfair taxation compared to
                         voice & data roaming)                                                      Development of these players:
                                                               global internet companies
                                                                                                    Integration of communication
                                                               that use tax loopholes in Europe
                                                                                                    channels (telephony, SMS,
                                                               e.g. VAT in Luxembourg and
                                                                                                    videocalling, video …)
                                                               income tax in Ireland
                                                                                                    Customer relations partially
                                                                                                    captured through closed
                                                                                                    ecosystems (Apple, Google…)
    Source: Arthur D. Little analysis
                                                                                                                                         30
3   French telcos facing strong pressures

    Regulation: since 2006, decreases in termination rates and roaming tariffs have reduced
    telcos’ revenues in France by ~€15 B.

             Impact of decreases in MTR and roaming charges (1) on telecom operators’ revenues (2) in France

      €M

          Impact of MTR decrease             -840
                                                      -1,283
                  Impact of roaming           -274
                   charges decrease                                    -2,348
                                             -1,114                                  -2,950
                                                      -585
                                                      -1,867                                            -4,048
                                                                       -635
                                                                       -2,984         -814

                                                                                     -3,764                                 Strong
                                                                                                         -901            decrease in
                                                                                                                        roaming tariffs
                                                                                                        -4,949             in 2012

                                             2007     2008             2009          2010                2011


                                                               Total 2006-2011: ~€14.7 B

    Source: ARCEP, Arthur D. Little analys                                                                (1) Roaming-in and roaming-out
                                                                                   (2) Gap analysis with same volumes vs. case where MTR
                                                                                     and roaming charges would have remained flat since 2006 31
3    French telcos facing strong pressures

    Taxation: telecom operators in France suffer from an industry-specific taxation of €1.2 B per year,
    i.e. much higher than the one in force in the 4 largest countries in Europe and in the USA.

      Main industry-specific taxes for telecoms(1) in 2011                                       Telecom industry-specific taxation

      €M                                                                            % of 2010 revenues
                                                        Financing…
             1,211
                                                    End of advertising on             2.79%
              235       “Telecom Tax”
                                                     France Télévisions

              150       TST / COSIP(3)              Cinema (CNC) and TV
              41        Copyright levy, VoD         Cinema, right holders                           1.95%
                                                                                                                  1.79%
              253       Management charge
                                                            State
                        (frequencies)
              127                                       Regions, cities
                        IFER antennae
                                                                                                                               0.81%

              405       IFER copper(2)                    Regions
                                                                                                                                             0.12%         0.06%
             Taxes
                                                                                     France          Italy        Spain          US        Germany           UK

                           Total: €1.2 B per year
                    i.e 15% to 20% of annual investments

     Source: FFTélécoms, Reuters, Durieux report,                                                                     (1) On the perimeter of FFTélécoms members
     Upnext Research, press                                                                                             (2) IFER: Flat-rate tax on network industries
                                                           (3) TST: Tax on TV services, used for COSIP (Compte de Soutien à l’Industrie des Programmes Audiovisuels) 32
3   French telcos facing strong pressures

Taxation: unlike telecom operators, global internet players choose to benefit from tax loopholes
in Europe.

    Tax optimisation mechanisms used by some global internet companies                                   Income tax paid in France

                                                                                                      2011, % of revenues
                                                                                         Examples
                     Country of end                                 Country                 Ireland
                      consumption                                  of taxation
                                                                                                              5.78%
                                                                                       Luxembourg




                             VAT                                               Income tax

            €300 M of VAT loss                                                                                                 0.16%
            for France on electronic                                Only €12 M of income tax
            services in 2008                                        paid by « GAFA »(1)                         (2)


                                                                    companies in France in 2011            Opérateurs          GAFA
            €600 M expected in 2014


    From 2019 onwards, VAT will be fully due in the country of end consumption.

     Source: Greenwich Consulting, French Digital Council, Marini Bill, Arthur D. Little analysis           (1) Google, Apple, Facebook, Amazon
                                                                                                                          (2) Fiscal group France
                                                                                                                                                    33
3   French telcos facing strong pressures

    Competition: on mobile and fixed markets, French prices are the lowest, when compared to
    the 4 largest countries in Europe and compared to the USA.

                  Price of a comparable mobile offer(1)                                                    Price of a comparable fixed offer(2)

     € per month, October 2012                                                                € per month, October 2012

                                                                           78                                                                                        77

                                                              67

                                                                                                                                                        56
                                                   50                                                                                      48
                                     42                                                                                        43
                         38                                                                                       40
                                                                                                     32

             20




    Source: operators, Arthur D. Little analysis                    (1) Unlimited voice (min. 500 minutes), unlimited SMS/MMS (min.1000 SMS,) Internet 1, 2 or 3 Go; SIM only,
                                                                                     tethering when available, no contract when available, operators having a market share > 15%;
                                       (2) Unlimited fixed national calls (min. 3000 minutes), broadband with no fair usage for heavy users when available,TV; excluding cablecos 34
3   French telcos facing strong pressures

    Competition: new type of competition by over-the-top players is becoming a reality,
    especially in France on TV and VoD services.

                                          SMS
             Voice                                               Video calls                    Video        Skype: 254 million
                                           /IM
                                                                                                             active users in the
                                                                                                            world, 20% of calls
                                                                                                            globally and 33% of
                                                                                                             international calls




                                                                                                             Whatsapp: 5% of
                                                                                                           instant messages in
                                                                                                              the world as of
                                                                                                             November 2011


                                                                                                            Netflix: 33% of US
                                                                                                             peak time traffic
                                                                                                                  in 2011




           OTT services may capture up to 7.5% mobile revenues by inhabitant in Europe by 2015.

    Source: Exane BNP Paribas, Sandvine Intelligent Broadband Networks, press, Arthur D. Little analysis

                                                                                                                                 35
Survey on the “French Telecom Economics” (period 2006-2011)


1   The telecom industry is at the core of society and economy.


2   Telecoms are a major driver in the development of the digital economy.


3   In France, telecom operators’ performance is declining under strong regulatory, fiscal and competitive pressures.


4   An ambitious and consistent industrial policy for telecoms is required at both French and European levels.




                                                                                                                  36
An ambitious and consistent
industrial policy for telecoms is required
        in France and in Europe




                                             37
4   Need for a new industrial policy for telecoms

    Re-building an industrial policy is paramount in order to foster investment and growth in the
    telecom industry.
                                                                                     Very high speed
                                                                                       broadband
                                                                                                                                    ?
                                                        Broadband                                          4G                             Connected
                                                                                                                                           objects
                                                          for all                                                             Digital
                                                                                                 Fiber                        growth
                First equipment                                                                                                areas
                                                                     Smartphones
                 of individuals                                TV
                   and homes
                                                                     Mobile
                             Internet             ADSL boxes
                                                                    internet

                   Mobile
                 telephony



                                                                                                         Which regulatory and fiscal framework
       Markets open for competition                  Consumerist approach (new licenses,                  to foster next generation networks?
       « Beauty contests » for licenses              lower MTR & roaming charges)
       Tariff asymmetry                              License auctions                                    Which industrial policy to develop very
       High MTR and roaming to finance network       Network unbundling                                    high speed broadband as well as
       investment                                    Net neutrality
       Internat. internet players not regulated      Internat. internet players not regulated
                                                                                                                 new digital services?

     1990                                    2000                                               2012
    Source: Arthur D. Little analysis

                                                                                                                                                      38
4   Need for a new industrial policy for telecoms

    So far, initiatives to support the digital economy have remained patchy and heterogeneous.


                            Initiatives in France                                                Initiatives in Europe

    Government Digital Plan                                                  Digital Agenda for Europe
      Very high speed broadband for all by 2022                                Broadband target: >30 Mbps for all and > 100 Mbps for at least
      Development of digital services in education, health, administration     50% of households by 2020
                                                                               Doubling public investment of Member States to €11 B in ICT
      “Paris Capital Numérique”, high-tech cluster gathering start-up
                                                                               R&D
      companies, universities and investors on the same location
                                                                               Digital inclusion (increase regular internet use to 75% by 2015)
    On Oct. 9th, 2012, the French government announced
                                                                               eGovernment: 50% of citizens using it by 2015
    measures promoting employment & investment in telecoms
       Observatory of investment in mobile networks                            …
       Incentives to speed-up 4G roll-out                                    EU infrastructure funds: “Connecting Europe Facility”
       Operators’ commitments for France-based jobs in call centers          (European Commission proposal)
       Update of rules regarding handset subsidizing                           €50 B of which €9.2 B for telecoms


    Programme “Investments for the future”: digital part                     Europe 2020 project bond initiative
       Innovative digital services, usages and contents                        Pilot phase starting with €230 M for strategic infrastructure
       – Digitization of scientific, education and cultural contents           investments
       – Cloud Computing (€150 M funding by the French State)                  Targeted sectors: telecoms, transport, energy
       Support to private investments in fiber                                 Expected private investment: up to €4.6 B due to a x15-x20
       Smart grid (innovative energy networks)                                 multiplier effect

    Source: French government, EU, Arthur D. Little analysis

                                                                                                                                                  39
4   Need for a new industrial policy for telecoms

    3 priorities for France and Europe to invest and create jobs in the telecom sector:




                           Ensure and support continued investment in the telecom infrastructures
         Priority #1
                           of tomorrow




                           Create a level playing field for competition and           negotiations
         Priority #2
                           between telecom operators and global internet players




                           Support the creation of new digital growth areas around telecom
         Priority #3
                           operators at the benefit of the “sectors of tomorrow”


    Source: FFTélécoms

                                                                                                 40
4   Need for a new industrial policy for telecoms

    3 priorities for France and Europe: detailed actions to be implemented


     1. Continued investment          2. Level playing field through a fair tax and regulatory 3. New digital
        in networks                      treatment                                                growth areas

        Regulatory framework            End of regulatory asymmetry                                                  Incentives to develop
        conducive to a balance           – Same regulatory context for telecom operators and OTT players to          digital clusters around
        between profitability,             ensure fair competition                                                   telcos and start-up
        investment and                                                                                               companies
        competition
         – EU support to invest in
                                        Fair taxation
           very high speed               – At least, a tax relief for industry-specific taxation and new rules for   First-move in the usage of
           broadband networks               governance (Telecom Tax, TST, copyright levy,…), restrictions for        new technologies by public
                                            taxes on new services (VoD and catch-up TV,…), no new taxes              services (e.g. in NFC, eHealth
         – End of termination rate          such as CNM, eBook,…                                                     and eEducation)
           asymmetry

                                        Fair taxation                                                                Continuation of Crédit Impôt
                                         – Same calculation base for OTT players and telcos regarding                Recherche (tax relief based
        Tax incentives for
                                           industry-specific taxes                                                   on R&D expenditures) for
        investment
                                                                                                                     digital businesses
         – Public stimulation of         – Taxation of OTT players in proportion of their effective business
           demand through tax              in France (IS, VAT, CVAE, accis project, …)
           incentives for very high                                                                                  Training programs for
           speed broadband                                                                                           technicians and engineers and
           connection                                                                                                communication campaigns to
                                        Fair remuneration for usage of infrastructure by all players                 bolster attractiveness of
                                                                                                                     digital jobs

    Source: FFTélécoms

                                                                                                                                                    41
Survey on the “French Telecom Economics” - 2012 edition: key conclusions
  Telecoms are at the core of society and the economy.
 – Demand and usage are growing fast.
 – Telecom operators are the first private investors in infrastructure in France by far (€6.6 B per year) and have
    injected over €200 B in the French economy since 2006.
  Telecoms are a major driver in the development of the digital sector.
 – Globally, the digital ecosystem is growing sharply (+49% since 2006) but Europe is lagging (+7% since 2006).
 – Telecom operators generate the vast majority of investments. Meanwhile, device manufacturers and internet
    players capture more and more value.
 – In France, telcos are the main contributors in terms of revenue (64%), jobs (77%), taxes (88%) and investments
    (92%).
  Telecom operators’ performance is sharply declining under regulatory, fiscal and competitive pressures.
 – In France, revenues and margins have started to drop and the trend is expected to continue.
 – This drop in performance is due to a combination of heavier regulation and taxation as well as stronger
    competition.
 – On mobile and fixed markets, French prices are now the lowest, when compared to the other four largest
    countries in Europe and compared to the USA.
  To drive investment and growth in telecoms, it is paramount to re-build an ambitious and consistent
  industrial policy in France and in Europe.
 – Priority #1: Ensure and support continued investment in the telecom infrastructures of tomorrow
 – Priority #2: Create a level playing field for competition and negotiations between telecom operators and global
    internet players
 – Priority #3: Support the creation of new digital growth areas around telecom operators at the benefit of the
    “sectors of tomorrow”
                                                                                                                 42
Présentation ERDF
                     43
                    50

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Survey on the “French Telecom Economics” 2012 edition

  • 1. Survey on the “French Telecom Economics” 2012 edition Fédération Française des Télécoms / Arthur D. Little November, 2012
  • 2. Survey on the “French Telecom Economics” (period 2006-2011) 1 The telecom industry is at the core of society and economy. 2 Telecoms are a major driver in the development of the digital economy. 3 In France, telecom operators’ performance is declining under strong regulatory, fiscal and competitive pressures. 4 An ambitious and consistent industrial policy for telecoms is required at both French and European levels. 2
  • 3. Telecoms, at the core of society and economy Over 3/4 of French people €39 B invested in telecom networks have a mobile phone and an internet access since 2006 Over 300,000 €204 B injected in the French economy direct and indirect telecom jobs since 2006 based in France Less than 3% of French households’ spending 8% decrease in telecom prices dedicated to telecom services since 2006 vs. inflation of +10% 503
  • 4. 1 At the core of society and economy Telecom services are now almost universal in French society: more than 85% of the population equipped with a mobile and 76% having an internet access. Mobile equipment rate(1) Penetration rate of internet access(2) % of French population % of French households +11 points 85% +35 points 82% 83% 78% 74% 76% 74% 75% 69% 62% 55% 41% 2006 2007 2008 2009 2010 2011 2006 2007 2008 2009 2010 2011 Source: CREDOC, OECD, Arthur D. Little analysis (1) French people over 12 years with one mobile phone or more (2) Fixed and mobile 4
  • 5. 1 At the core of society and economy Telecoms are a priority for the French population, French investors and French public representatives. 1 - Main saving items 2 - Mains levers to improve attractivity 3- Priority equipment for rural towns according to households of French cities for foreign investors If needed, on which item would you cut What are the key levers that French % mayors questioned your spending in priority? cities should use to increase their competitiveness in Europe? Leisure 47% First-class transport and telecom infrastructures Fixed broadband 78% 37% Clothing 21% Internationally renowned universities Schools 52% 37% Home equipement 14% Innovative business areas Roads 45% 30% Food 7% Excellent quality of life 22% 3G telephony 42% Transport 2% Public equipment and urban development projects 13% Medical houses 34% International advertising campaigns Energy 2% 13% Quality health equipment and services Theaters 23% Health & insurance 2% 11% Major sports and cultural events Sports equipments 19% Telecoms 1% 8% None None 4% Post offices 16% 1% Source: fig. 1: CSA polling institute, fig. 2: Barometer of France’s attractiveness, fig. 3: Survey by the Association of French rural mayors, Arthur D. Little analysis 5
  • 6. 1 At the core of society and economy Telecom usage keeps on growing at a very rapid pace: +11% in mobile voice minutes, +69% in data traffic and +10 billion text messages in France over last year. Fixed telephony Mobile telephony Number of SMS Mobile data traffic volumes in France volumes in France in France in France B minutes B minutes B SMS B Mo +7% +13% +870% x127 113.5 106.1 146.0 58.6 105.7 94.0 +10 billion of SMS +69% +29% +11% -1% 23.0 45.7 28.1 26.8 29.7 27.7 35.5 13.7 15.1 0.5 2006 2011 2Q11 2Q12 2006 2011 2Q11 2Q12 2006 2011 2Q11 2Q12 2006 2011 2Q11 2Q12 Source: ARCEP - French Telecom NRA, Arthur D. Little analysis 6
  • 7. 1 At the core of society and economy Telecom services represent less than 3% of French households’ spending and have remained stable since 2006. French households’ spending breakdown(1) €B Relative growth Share in spending % % of spending in constant euros 1 017 +1.7 pts 100% 11.1% 4.4% (2) 2.7% Other 4.4% Telecom services (3) 3.0% (4) 4.2% Digital devices +0.1 pts 4.5% Alcohol & tobacco 2.7% 2.7% 6.0% (5) Health 6.8% 2.6% 2,1% Clothing 6.9% Furniture 1,9% 1,3% 13.3% Leisure & culture 1,1% Hotels & restaurants 0,5% 13.5% Food 0,2% Transport Housing, electricity & gas 2006 2011 Digital devices 23.6% Of which Radio & TV sets Computer Mobile devices 2011 Telecom services (1) Final household spending Source: National Institute of Statistics and Economic Studies (INSEE), (2) Including postal services and education Arthur D. Little analysis (3) Excluding telephony devices (4) Including telephony, fax, TV & radio, computer and photography devices (5) Excluding social security 7
  • 8. 1 At the core of society and economy The prices of telecom services are decreasing, contrary to other major French households’ spending. Price index of major services for French households On a basis of 100 in 2006 140 + 36% 136 Gas Rail + 17% 117 Electricity + 16% 116 115 114 Mail + 14% 112 110 Tolls + 12% 110 107 Inflation + 10% 105 Financial + 7% services 100 95 92 Fixed and mobile -8% 90 telecom services 2006 2007 2008 2009 2010 2011 2012(1) Source: National Institute of Statistics and Economic Studies (INSEE), (1) 1H2012 average, except for tolls (increased as of Feb. 1st, 2012) Ministry of Transportation, Arthur D. Little analysis 8
  • 9. 1 At the core of society and economy Telecom operators are the main private investors in infrastructure in France with €39 B invested in telecom networks over the last 6 years. Telcos’ investment in France between 2006 and 2011 Investment in infrastructures in France €B Yearly average over 6 years, for the period 2006- Excl. mobile Total 2006-2011: spectrum 2011, € B(1) €39.4 B 6.6 7.0 6.8 7.0 6.5 6.2 5.9 2.4 2.4 Mobile 3.2 €15 B 2.4 2.4 2.2 3.3(2) 3.2 1.8 4.4 4.6 Fixed 3.8 3.8 4.1 3.7 €24.4 B Telecoms Electricity Rail Highways networks Telecoms, 1st private investor 2006 2007 2008 2009 2010 2011 in infrastructures in France Source : ARCEP – French Telecom NRA, Association des (1) Telecoms: France Télécom, SFR, Bouygues Telecom, Iliad; Electricity: RTE et ERDF; Sociétés Françaises d’Autoroutes (ASFA), RFF, RTE, ERDF, Réseau Ferré de France: special status; Highways: ASFA (Sanef, SAPN, ASF, APRR….) Arthur D. Little analysis (2) Average on 5 years (2006-2011) 9
  • 10. 1 At the core of society and economy The telecom industry supports employment with 128,000 direct jobs based in France. Direct jobs from telecom operators in France Jobs in the IT digital ecosystem in France Thousands of jobs based in France Thousands of jobs based in France(1) 2006 2011 133 133.0 128.0 130 128 126 126 124 18.3 22.3 11.6 14.0 0.7 1.9 1.8 3.1 2006 2007 2008 2009 2010 2011 5 telecom 5 equipment 5 device 5 content 5 internet operators(2) vendors(3) manuf.(4) providers(5) players (OTT) (6) Estimate: indirect jobs equal to direct jobs in the telecom industry Source: Diane, ARCEP – French Telecom NRA, Arthur D. Little analysis (1) 2010 data in case 2011 data are not available (4) By top revenues in France: Samsung, Apple, Nokia, LG et RIM (2) By top revenues in France: France Telecom, SFR, Bouygues Telecom, Iliad, Numericable (5) By top revenues in France: France Télévisions, Canal +, TF1, M6, Radio France (3) By top revenues in France: Alcatel-Lucent, Nokia Siemens Networks, Cisco, Ericsson, Huawei (6) Google, Facebook, Yahoo, Microsoft et Amazon 10
  • 11. 1 At the core of society and economy Telecom operators paid €19 B in income taxes, licenses and industry-specific taxes between 2006 and 2011. Income tax paid by Industry-specific taxes Amounts spent French telecom operators paid by operators(2) to purchase spectrum Aggregate 2006-2011, in €B €B €B 2006-2011 total 2006-2011 total 2006-2011 total €14 B €3.6 B(3) €1.5 B 14.1 1.191 1.210 170 191 239 235 2.600 543 264 253 92 230 266 212 0.944 200 0 33 518 531 0.582 0 200 230 233 239 (1) 2006 2007 2008 2009 2010 2011 3G 4G 4G Management levies 2010 (2.6 Ghz) (800 Mhz) Other(4) (frequencies) 2011 2012 Telecom tax IFER (Flat-rate tax on network industries) (1) Fiscal group France Source: ARCEP – French Telecom NRA, FFTélécoms, annual reports, Les Echos, (2) Fiscal group France Orange, SFR and Bouygues Télécom Arthur D. Little analysis (3) Assumption: IFER set up in 2010 and telecom tax in 2009 (4) TST / COSIP / copyright levy, VoD 11
  • 12. 1 At the core of society and economy In total, telecom operators injected €204 B in the French economy between 2006 and 2011. Between 2006 and 2011… French State Telecom operators paid €23B to the State in taxes (excl. VAT), licenses and dividends. Direct and indirect Networks jobs 11% Telecom operators paid €76B Telecom operators invested in salaries and benefits for 37% 19% €39B in the roll-out, upgrade direct and indirect jobs.(1) and maintenance of their telecom networks. 10% Other suppliers / outsourcing 23% Private shareholders Telecom operators spent €46B Telecom operators paid €20B to in other types of expenditures their private shareholders. (marketing, distribution,...). Source: companies, Arthur D. Little analysis (1) Salaries and social charges 12
  • 13. Survey on the “French Telecom Economics” (period 2006-2011) 1 The telecom industry is at the core of society and economy. 2 Telecoms are a major driver in the development of the digital economy. 3 In France, telecom operators’ performance is declining under strong regulatory, fiscal and competitive pressures. 4 An ambitious and consistent industrial policy for telecoms is required at both French and European levels. 13
  • 14. Telecoms, major driver of digital growth Growth of the digital ecosystem since 2006: Share of telecoms in the French digital ecosystem: +49% worldwide 77% of jobs vs. +7% in Europe 92% of investments Share of telecoms in the global Investment of telecom operators digital ecosystem: in very high speed broadband in France: 70% of investments over 1 point a potential of of additionnal GDP benefiting the French economy 14 50
  • 15. 2 Major driver of digital growth Globally, the digital sector is sharply growing across all segments. Revenue evolution of the digital ecosystem by sub-sector(1) $B Growth Examples of +49% 2006-2011 companies 3,332 3,066 157 +152% 2,817 2,819 121 305 +10% 2,619 87 97 301 78 320 299 Internet players 2,243 302 62 1,286 +68% Content providers 279 1,175 987 1,007 889 Device manufacturers 765 179 +19% 181 166 173 177 Equipment vendors 150 1,242 1,251 1,297 1,405 1,173 Network operators 987 +42% 2006 2007 2008 2009 2010 2011 Source: Thomson Reuters, Arthur D. Little analysis (1) Top 30 per category by 2011 revenues 15
  • 16. 2 Major driver of digital growth In Europe, revenues of the digital ecosystem are stalling - contrary to North America and Asia. Revenue evolution of the digital ecosystem by region(1)(2) $B Growth 2006-2011 3,333 3,067 27 +58% Oceania 2,817 2,820 21 2,619 24 21 20 1,446 +73% Asia 2,243 1,312 Oceania 17 1,117 1,165 968 Asia 837 70 +118% South America 37 66 42 45 South America 32 893 954 1,025 1,155 +51% North America 937 North America 762 Europe 594 696 686 652 643 635 +7% Europe but -9% since 2007 2006 2007 2008 2009 2010 2011 Source: Thomson Reuters, Arthur D. Little analysis (1) Top 30 per category by 2011 revenues (2) Nationality according to HQ location 16
  • 17. 2 Major driver of digital growth Globally, telecom operators generate the vast majority of investments, whereas device manufacturers and internet players capture more and more value. Investment share by sub-sector(1) Free cash flows by sub-sector(1) % of total investment of the ecosystem % of total free cash flows of the ecosystem +0 pt -9 pts 70% 70% 57% 48% +16 pts -1 pt -7 pts 26% +7 pts 21% 20% -1 pt +1 pt -3 pts 17% +0 pt 13% 12% 7% 10% 6% 5% 4% 5% 2% 2% 2% 3% Network Device Equipment Content Internet Network Device Equipment Content Internet operators manuf. vendors providers players operators manuf. vendors providers players 2006 2011 2006 2011 Source: Thomson Reuters, Arthur D. Little analysis (1) Top 30 per category by 2011 revenues 17
  • 18. 2 Major driver of digital growth Globally, market capitalisation reflects the value capture of players within the digital ecosystem. Market capitalisation by sub-sector(1) Basis of 100 in 2006 220 202 200 Internet players +102% 180 159 160 Device manuf. +59% 140 120 114 Total +14% 99 100 Network operators -1% 81 80 Content providers -19% 56 60 Equipment vendors -44% 40 2006 2007 2008 2009 2010 2011 2012(2) Source: Thomson Reuters, Arthur D. Little analysis (1) Top 30 per category by 2011 revenues (2) As of Sept. 28th, 2012 18
  • 19. 2 Major driver of digital growth In France, telecom operators are the main contributors in terms of revenue, employment, taxes and investments - by far. Revenues, jobs, taxes and investments of 5 players by sub-sector – in 2011 and in France Revenues(1): Direct jobs: Taxes and licenses(2): Investments(3): €68 B 167,000 €7.1 B €7.6 B 2% 1% 4% 8% 10% 1% 13% 1%2% 1%1% 14% 1% 7% 11% 64% 3% 77% 88% 92% 5 network operators 5 equipment vendors 5 device manufacturers 5 content players 5 internet players (OTT) Source: ARCEP – French Telecom NRA, Diane, Reuters, annual reports, Arthur D. Little analysis (1) Revenue reported for France or disclosed in the press, some adjusted data to estimate actual revenue generated on French market (2) Income tax, other taxes excl. VAT, licenses and industry-specific taxation 19 3) Excl. licenses, if data for France unavailable then estimated with prorata of jobs in France
  • 20. 2 Major driver of digital growth Nationally as well as globally, telecom operators are key players in the development of potential « sectors of tomorrow » in the growing digital ecosystem. Selected examples Cloud computing Contactless payment E-health Support to start-ups Strategic partnerships Support to start-ups in communication services e.g.: Association Française du Public funding: €75M Sans Contact Mobile (AFSCM) initiated by Orange, SFR et Bouygues Telecom – Over 1 million Cityzi mobile handsets Illustrative services: distributed in France by – Medical imaging through Investment fund in start-ups 1H12 cloud such as: Public funding: €75M – Objective of 2.5 million by – Partnership for end of 2012 management of chronic diseases, mobile assistance … Technocom 2 Strategic partnership Creation of electronic wallet solution Orange’s 2020 objective for Investment fund in start-ups access to digital health with focus on digital applications(1): developments in networks, – 1/3 of EU hospitals energy, smart home and health – 20% of EU citizens Source: companies, Arthur D. Little analysis 1) Orange’s “10 commitments” contributing to implement EU’s Digital Agenda 20
  • 21. 2 Major driver of digital growth Through their broadband investments, telecom operators can contribute to the economic recovery by generating over 1 point of additionnal GDP growth in France. Impact of investment in mobile and fixed broadband in France directly or through the digital ecosystem and improvement of competitiveness of companies ~€20 to €30B ~€6.2B investment in 4G investment in fiber (excluding licenses) in the coming 15 years in the coming 5 years Fixed broadband throughput X5 Investing ~€5B in 4G in equipped households would yield 0.37 point (from 20 Mbps to 100 Mbps) of additional GDP2) Doubling the broadband speed for an economy increases GDP by 0.3 point(1) +0.75 point +0.46 point extra GDP (1) extra GDP(1) Source: ARCEP, Tactis, IDATE, Capital Economics, Arthur D. Little analysis (1) According to Ericsson (« Socioeconomic effects of broadband speeds », September 2011) in a survey focused on OECD countries (2) According to Capital Economics (« Mobile Broadband and the UK Economy », 21 April 2012) addressing the UK market
  • 22. Survey on the “French Telecom Economics” (period 2006-2011) 1 The telecom industry is at the core of society and economy. 2 Telecoms are a major driver in the development of the digital economy. 3 In France, telecom operators’ performance is declining under strong regulatory, fiscal and competitive pressures. 4 An ambitious and consistent industrial policy for telecoms is required at both French and European levels. 22
  • 23. Sharp drop in telecom operators’ performance Market capitalisation of European telecom operators since 2006 €15 B of revenue loss -28% for French telecom operators due to decreases in mobile termination rates and roaming charges since 2006 Expected trend of French telcos’ revenues until 2014 €1.2 B of industry-specific taxation -9% paid by telcos each year in France Expected trend of French telcos’ EBITDA Telcos’ mobile revenues until 2014 that may be captured by internet players -5 points 7.5% 23 50
  • 24. 3 French telcos facing strong pressures Contrary to other regions in the world, the European telecom industry has hardly grown in 5 years, which implied a sharp drop in its value. Revenues of network operators by region(1) Market cap of network operators by region(1) Basis of 100 in 2006 Basis of 100 in 2006 172 +72% Asia 156 +56% North America +18% Asia 118 142 Dow Jones +17% World +42% 117 Industrial 100 107 +7% North America 99 World -1% 72 Europe -28% Europe +8% 100 108 2006 2007 2008 2009 2010 2011 2006 2007 2008 2009 2010 2011 2012(2) Telco’s revenue growth is 7 to 9 times lower European telcos’ value has shrunk by 28% in Europe than in Asia and North America between 2006 and 2012(2) Source: Thomson Reuters, World Bank, (1) In top 30 global operators, nationality according to HQ location Arthur D. Little analysis Revenue growth of Australian and South American network operators is respectively 13% and 26% (2) Value as of Sept. 28th, 2012 24
  • 25. 3 French telcos facing strong pressures The decrease in revenues is stronger in France than in other European countries and in other parts of the world. Mobile revenue growth Fixed revenue growth(2) 4Q11 vs. 4Q10 2011 vs. 2010 Revenue growth in % Revenue growth in % 11.3% 5.0% 4.6% 0.2% -4.0% -2.2% -2.7% -5.3% US Canada UK France North Asia Pacific Europe France(1) America Source: Bank of America Merrill Lynch, ARCEP, Arthur D. Little analysis (1) Retail market revenues (source: ARCEP – French telecom NRA) (2) 3 main wireline operators (USA: AT&T, Verizon, Sprint; Canada: BCE, Telus, Shaw Communications; UK: BT, Virgin Media, TalkTalk; France: Orange France, SFR, Iliad) 25
  • 26. 3 French telcos facing strong pressures In France, telecom operators’ revenues and margins are expected to sharply decrease until 2014. Aggregated revenues Aggregated EBITDA margin of main telcos(1) in France of main telcos(1) in France €B % revenues +4% -2% 40% -9% 45 -9% 37.5% 43.4 43.6 -14% 42.6 35.1% 41.9 34.3% 34.0% 41.0 39.5 40 Revenues 38.8 EBITDA 30.9% as of 29.8% 29.2% 30% as of 1H12: 1H12: €20.7 B 32.9% 35 Analyst consensus Analyst consensus 30 20% 2008 2009 2010 2011 2012e 2013e 2014e 2008 2009 2010 2011 2012e 2013e 2014e Source: Citigroup, HSBC, Exane, Natixis, Credit Suisse, JP Morgan, Deutsche Bank, (1) Orange France, SFR, Bouygues Telecom, Iliad Arthur D. Little analysis 26
  • 27. 3 French telcos facing strong pressures Margin decline will negatively impact investment capacity as illustrated by the case of the UK market. Case of UK – Mobile and fixed(1) EBITDA / Revenue (%) Investment / Revenue (%) Basis of 100 in 2006 Basis of 100 in 2006 -6.3% -28.3% 100 100 94 72 2006 2011 2006 2011 Source: Bank of America Merrill Lynch, Arthur D. Little analysis (1) Mobile: Vodafone, O2, Orange / T-Mobile, Three; Fixed: BT only 27
  • 28. 3 French telcos facing strong pressures Operational cash flows of French telcos are in the same range as those of other major French companies. (EBITDA – CAPEX) / Revenue CAC 40, 2011 % 27% 23% 21% 20% 17% 18% 16% 17% 17% 14% 13% 12% 13% 12% 13% 10% 10% 9% 9% 9% 9% 8% 8% 7% 7% 6% 5% 5% 5% 4% 4% 3% 3% 3% 2% 1% -2% Bouygues Telecom STMicroelectronics Schneider Electric France Télécom Pernod Ricard Alcatel Lucent Saint Gobain Capgemini Air Liquide GDF Suez Bouygues Carrefour Vallourec Peugeot Legrand Michelin Technip Danone Renault Publicis Lafarge Vivendi L’Oréal Arcelor Alstom Essilor Safran Sanofi LVMH Veolia EADS Accor Total Vinci PPR SFR EDF Source: Thomson Reuters, operators, Arthur D. Little analysis 28
  • 29. 3 French telcos facing strong pressures Market value is negatively impacted by declining performance, which may open the door to bids by foreign players. Compared value of selected US and European telcos(1) Enterprise Value(2) / EBITDA 2011 Share of revenue in NA 100% NA 53% 73% 100% 90% 69% 83% Europe 10.2 9.8 US telecom average America Movil bid in 2012 8.3 7.5 European telecom 5.8 average 4.5 4.4 4.9 4.0 4.0 3.5 At&T Iliad Verizon DT KPN FT Vivendi Bouygues Group Group Source: Reuters, KPN, Infinancials.com, Morgan Stanley, analyse Arthur D. Little (1) Bouygues Group and Vivendi Group used as proxies for Bouygues Telecom and SFR (2) As of Sept. 28th, 2012 29
  • 30. 3 French telcos facing strong pressures The French telcos’ drop in performance can be explained by the deterioration of the regulatory and fiscal context as well as through a tougher competition. Regulation Taxation Competition National regulation National over-taxation Growth of low-cost model Regulatory pressure (loi Chatel, Taxing telecom operators to Model based on lighter decision on VAS…) benefit sectors in turmoil customer management with France Gradual implementation of the instead of investing in telecom limited distribution footprint, no innovative infrastructure and handset subsidizing national regularoty framework for investments (LTE, fiber) services Lower prices impacting compared to policies followed by profitability, investments, jobs other countries (Japan, S. Korea, and quality of service USA…) European regulation Tax optimisation by other Competition of over-the-top Regulatory pressure aiming at players players (OTT) International tariff decrease (interconnection, Unfair taxation compared to voice & data roaming) Development of these players: global internet companies Integration of communication that use tax loopholes in Europe channels (telephony, SMS, e.g. VAT in Luxembourg and videocalling, video …) income tax in Ireland Customer relations partially captured through closed ecosystems (Apple, Google…) Source: Arthur D. Little analysis 30
  • 31. 3 French telcos facing strong pressures Regulation: since 2006, decreases in termination rates and roaming tariffs have reduced telcos’ revenues in France by ~€15 B. Impact of decreases in MTR and roaming charges (1) on telecom operators’ revenues (2) in France €M Impact of MTR decrease -840 -1,283 Impact of roaming -274 charges decrease -2,348 -1,114 -2,950 -585 -1,867 -4,048 -635 -2,984 -814 -3,764 Strong -901 decrease in roaming tariffs -4,949 in 2012 2007 2008 2009 2010 2011 Total 2006-2011: ~€14.7 B Source: ARCEP, Arthur D. Little analys (1) Roaming-in and roaming-out (2) Gap analysis with same volumes vs. case where MTR and roaming charges would have remained flat since 2006 31
  • 32. 3 French telcos facing strong pressures Taxation: telecom operators in France suffer from an industry-specific taxation of €1.2 B per year, i.e. much higher than the one in force in the 4 largest countries in Europe and in the USA. Main industry-specific taxes for telecoms(1) in 2011 Telecom industry-specific taxation €M % of 2010 revenues Financing… 1,211 End of advertising on 2.79% 235 “Telecom Tax” France Télévisions 150 TST / COSIP(3) Cinema (CNC) and TV 41 Copyright levy, VoD Cinema, right holders 1.95% 1.79% 253 Management charge State (frequencies) 127 Regions, cities IFER antennae 0.81% 405 IFER copper(2) Regions 0.12% 0.06% Taxes France Italy Spain US Germany UK Total: €1.2 B per year i.e 15% to 20% of annual investments Source: FFTélécoms, Reuters, Durieux report, (1) On the perimeter of FFTélécoms members Upnext Research, press (2) IFER: Flat-rate tax on network industries (3) TST: Tax on TV services, used for COSIP (Compte de Soutien à l’Industrie des Programmes Audiovisuels) 32
  • 33. 3 French telcos facing strong pressures Taxation: unlike telecom operators, global internet players choose to benefit from tax loopholes in Europe. Tax optimisation mechanisms used by some global internet companies Income tax paid in France 2011, % of revenues Examples Country of end Country Ireland consumption of taxation 5.78% Luxembourg VAT Income tax €300 M of VAT loss 0.16% for France on electronic Only €12 M of income tax services in 2008 paid by « GAFA »(1) (2) companies in France in 2011 Opérateurs GAFA €600 M expected in 2014 From 2019 onwards, VAT will be fully due in the country of end consumption. Source: Greenwich Consulting, French Digital Council, Marini Bill, Arthur D. Little analysis (1) Google, Apple, Facebook, Amazon (2) Fiscal group France 33
  • 34. 3 French telcos facing strong pressures Competition: on mobile and fixed markets, French prices are the lowest, when compared to the 4 largest countries in Europe and compared to the USA. Price of a comparable mobile offer(1) Price of a comparable fixed offer(2) € per month, October 2012 € per month, October 2012 78 77 67 56 50 48 42 43 38 40 32 20 Source: operators, Arthur D. Little analysis (1) Unlimited voice (min. 500 minutes), unlimited SMS/MMS (min.1000 SMS,) Internet 1, 2 or 3 Go; SIM only, tethering when available, no contract when available, operators having a market share > 15%; (2) Unlimited fixed national calls (min. 3000 minutes), broadband with no fair usage for heavy users when available,TV; excluding cablecos 34
  • 35. 3 French telcos facing strong pressures Competition: new type of competition by over-the-top players is becoming a reality, especially in France on TV and VoD services. SMS Voice Video calls Video Skype: 254 million /IM active users in the world, 20% of calls globally and 33% of international calls Whatsapp: 5% of instant messages in the world as of November 2011 Netflix: 33% of US peak time traffic in 2011 OTT services may capture up to 7.5% mobile revenues by inhabitant in Europe by 2015. Source: Exane BNP Paribas, Sandvine Intelligent Broadband Networks, press, Arthur D. Little analysis 35
  • 36. Survey on the “French Telecom Economics” (period 2006-2011) 1 The telecom industry is at the core of society and economy. 2 Telecoms are a major driver in the development of the digital economy. 3 In France, telecom operators’ performance is declining under strong regulatory, fiscal and competitive pressures. 4 An ambitious and consistent industrial policy for telecoms is required at both French and European levels. 36
  • 37. An ambitious and consistent industrial policy for telecoms is required in France and in Europe 37
  • 38. 4 Need for a new industrial policy for telecoms Re-building an industrial policy is paramount in order to foster investment and growth in the telecom industry. Very high speed broadband ? Broadband 4G Connected objects for all Digital Fiber growth First equipment areas Smartphones of individuals TV and homes Mobile Internet ADSL boxes internet Mobile telephony Which regulatory and fiscal framework Markets open for competition Consumerist approach (new licenses, to foster next generation networks? « Beauty contests » for licenses lower MTR & roaming charges) Tariff asymmetry License auctions Which industrial policy to develop very High MTR and roaming to finance network Network unbundling high speed broadband as well as investment Net neutrality Internat. internet players not regulated Internat. internet players not regulated new digital services? 1990 2000 2012 Source: Arthur D. Little analysis 38
  • 39. 4 Need for a new industrial policy for telecoms So far, initiatives to support the digital economy have remained patchy and heterogeneous. Initiatives in France Initiatives in Europe Government Digital Plan Digital Agenda for Europe Very high speed broadband for all by 2022 Broadband target: >30 Mbps for all and > 100 Mbps for at least Development of digital services in education, health, administration 50% of households by 2020 Doubling public investment of Member States to €11 B in ICT “Paris Capital Numérique”, high-tech cluster gathering start-up R&D companies, universities and investors on the same location Digital inclusion (increase regular internet use to 75% by 2015) On Oct. 9th, 2012, the French government announced eGovernment: 50% of citizens using it by 2015 measures promoting employment & investment in telecoms Observatory of investment in mobile networks … Incentives to speed-up 4G roll-out EU infrastructure funds: “Connecting Europe Facility” Operators’ commitments for France-based jobs in call centers (European Commission proposal) Update of rules regarding handset subsidizing €50 B of which €9.2 B for telecoms Programme “Investments for the future”: digital part Europe 2020 project bond initiative Innovative digital services, usages and contents Pilot phase starting with €230 M for strategic infrastructure – Digitization of scientific, education and cultural contents investments – Cloud Computing (€150 M funding by the French State) Targeted sectors: telecoms, transport, energy Support to private investments in fiber Expected private investment: up to €4.6 B due to a x15-x20 Smart grid (innovative energy networks) multiplier effect Source: French government, EU, Arthur D. Little analysis 39
  • 40. 4 Need for a new industrial policy for telecoms 3 priorities for France and Europe to invest and create jobs in the telecom sector: Ensure and support continued investment in the telecom infrastructures Priority #1 of tomorrow Create a level playing field for competition and negotiations Priority #2 between telecom operators and global internet players Support the creation of new digital growth areas around telecom Priority #3 operators at the benefit of the “sectors of tomorrow” Source: FFTélécoms 40
  • 41. 4 Need for a new industrial policy for telecoms 3 priorities for France and Europe: detailed actions to be implemented 1. Continued investment 2. Level playing field through a fair tax and regulatory 3. New digital in networks treatment growth areas Regulatory framework End of regulatory asymmetry Incentives to develop conducive to a balance – Same regulatory context for telecom operators and OTT players to digital clusters around between profitability, ensure fair competition telcos and start-up investment and companies competition – EU support to invest in Fair taxation very high speed – At least, a tax relief for industry-specific taxation and new rules for First-move in the usage of broadband networks governance (Telecom Tax, TST, copyright levy,…), restrictions for new technologies by public taxes on new services (VoD and catch-up TV,…), no new taxes services (e.g. in NFC, eHealth – End of termination rate such as CNM, eBook,… and eEducation) asymmetry Fair taxation Continuation of Crédit Impôt – Same calculation base for OTT players and telcos regarding Recherche (tax relief based Tax incentives for industry-specific taxes on R&D expenditures) for investment digital businesses – Public stimulation of – Taxation of OTT players in proportion of their effective business demand through tax in France (IS, VAT, CVAE, accis project, …) incentives for very high Training programs for speed broadband technicians and engineers and connection communication campaigns to Fair remuneration for usage of infrastructure by all players bolster attractiveness of digital jobs Source: FFTélécoms 41
  • 42. Survey on the “French Telecom Economics” - 2012 edition: key conclusions Telecoms are at the core of society and the economy. – Demand and usage are growing fast. – Telecom operators are the first private investors in infrastructure in France by far (€6.6 B per year) and have injected over €200 B in the French economy since 2006. Telecoms are a major driver in the development of the digital sector. – Globally, the digital ecosystem is growing sharply (+49% since 2006) but Europe is lagging (+7% since 2006). – Telecom operators generate the vast majority of investments. Meanwhile, device manufacturers and internet players capture more and more value. – In France, telcos are the main contributors in terms of revenue (64%), jobs (77%), taxes (88%) and investments (92%). Telecom operators’ performance is sharply declining under regulatory, fiscal and competitive pressures. – In France, revenues and margins have started to drop and the trend is expected to continue. – This drop in performance is due to a combination of heavier regulation and taxation as well as stronger competition. – On mobile and fixed markets, French prices are now the lowest, when compared to the other four largest countries in Europe and compared to the USA. To drive investment and growth in telecoms, it is paramount to re-build an ambitious and consistent industrial policy in France and in Europe. – Priority #1: Ensure and support continued investment in the telecom infrastructures of tomorrow – Priority #2: Create a level playing field for competition and negotiations between telecom operators and global internet players – Priority #3: Support the creation of new digital growth areas around telecom operators at the benefit of the “sectors of tomorrow” 42